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GRONTMIJ: Quarter horribilis, downgrade to Hold

GRONTMIJ: Quarter horribilis, downgrade to Hold

8.11.2011 9:48

Grontmij pre-released its 3Q11 results, and confessed to a profit warningas end markets, especially in the UK and the Netherlands, worsened further.

Quarter horribilis:
Despite higher gross revenues, which came in at € 260m (251.4m KBCS, 252.2 CSS), and net revenues at € 201m (188.2 KBCS, 192.4 CSS), the underlying EBITA at € 6.0m (8.9 KBCS, 10.7 CSS) came in significantly below expectations. Net profit was further impacted by higher restructuring charges, and a negative revaluation effect of the real estate portfolio (€ 2.7m).

Profit warning:
Management lowered its Underlying FY11 EBITA guidance to circa € 40m (from flat y/y, previously implying € 46.5m), which compares to our below guidance forecast of € 45.8m.
Grontmij sees a worsening of results in the Netherlands and the UK and is planning for further restructuring. Although well flagged, management still sounded more confident over previous months, and indeed they note that after the holiday period, against indications from their order book and pipeline, they saw utilization rates deteriorate further. Management sees postponed, delayed and even cancelled orders. It seems that even Chuck Norris couldn’t have saved them and management will need to act by taking additional restructuring measures (IT, back office, rationalization offices, taking out direct and indirect costs in the Netherlands), while also putting a tighter control on cash. Given the current market circumstances, especially at local government level, improving payment cycles might be challenging. Management also noted that as a consequence of further measures to be taken in the fourth quarter, they take into account that their FY forecast year end of net after tax profit will appear to be insufficient to cover a dividend payment for 2011.

Telecoms divested, and will lower net debt by ~€ 30m
Grontmij divested the Telecoms activities for cash proceeds of € 30m vs. our € 25.5m modelled in. We earlier said that each € 1m higher would have a positive impact of € 0.05/sh on our valuation. Note that company has been hinting for € 30-35m before.

Downgrade to Hold, target price under review
As a result of this quarterly release, and the further worsening of the UK and Dutch market environment, we lower our rating to Hold from Accumulate and put our TP under review (was 14). A conference call is schedule at 11:00am CET.

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